Startup founders are usually more concerned with growth and fundraising than accounting, but they can land themselves in hot water if they don’t keep a close eye on their accounts. With tax time quickly approaching, here are some tips to save you time, money, and legal headaches this EOFY.
If you’re a founder who usually keeps your receipts in a cardboard box, you may want to read these EOFY tips to capitalise on the incentives up for grabs, as well as stay up to date with the legal changes affecting you in the coming financial year.
1. Get your docs in a line
If your startup is claiming the R&D Tax Incentive, Caroline Yassa, R&D Incentive and grants consultant at Ernst & Young, says this is a good time to ensure your documents are in order so you can lodge your application as soon as June 30 ticks over (assuming your business has a June 30 year-end).
The sooner you lodge your application, the sooner you can realise the benefit. Eligible startups (even those pre-revenue) can realise up to 43.5c cash back on each dollar of eligible R&D expenditure spent on eligible R&D activities. The refundable tax offset is available to companies with less than $20 million in annual turnover, while all other companies can apply for a 38.5% non-refundable tax offset.
2. Seek expert advice
Unsure what you need to do to claim the R&D incentive? As with many tax and legal issues, it’s always a good idea to engage a professional advisor to help you through the processes and make sure that you are complying with the rules and regulations.
With the R&D Tax Incentive, you’ll have to ensure you have appropriate documentation dealing with key items such as the technical objectives, the experimental activities undertaken and the new knowledge developed. As Yassa notes, documentation is crucial for R&D Tax Incentive claims, and in ensuring only eligible R&D activities are claimed.
3. Get your refund and exchange policy up to date
Startups should also make sure they are compliant with legislation this EOFY, according to Viv Lister and Shaun Restorick-Barton from Law Squared, a Melbourne-founded law firm providing counsel to startups and entrepreneurs.
“EOFY sales mean a surge in online purchases and potential refund/exchange requests for your startup,” Lister and Restorick-Barton say.
“Now is a great time to ensure that your refund and exchange policy complies with the Australian Consumer Law. Penalties apply, so don’t fall in the common trap of refusing to accept returns of sale items.”
If you’re unsure if your refund and exchange policy is compliant, head here for more information
4. Utilise ESIC tax offsets
Lister and Restorick-Barton suggest founders also check whether they are eligible for early stage innovation companies (ESIC) tax incentives this EOFY.
“Startups looking to attract investment should consider whether the new tax incentives for investment in an early stage innovation company might benefit potential investors,” they say.
“From July 1, if you qualify as an ESIC, your investors may be eligible for tax offsets of up to $200,000.”
Unsure if your startup qualifies as an ESIC?
Head to the ATO website for a rundown of the key criteria you’ll need to meet to be recognized as an ESIC.
5. Claim your $20,000 asset write-offs
Startups purchasing new assets under $20,000 can immediately write-off the full value of these purchases, rather than waiting the usual five years to realise this return.
The instant asset write-off scheme was first introduced by the federal government in 2015 and was extended for another 12 months in the May budget. The scheme is now available to businesses with up to $10 million in annual turnover and can be used multiple times by the same business.
The catch? The assets must be purchased and installed before June 30 and startups cannot use this scheme to write-off expenditure that they are also trying to claim an offset for under the R&D Tax Incentive.
6. Make use of other deductions
All businesses should maximise their deductions at tax time, including startups. For some, this can mean bringing forward expenses such as rent, utilities or repairs before year end.
However, Lisa Grieg, a tax professional at Perigee Advisers, recently told SmartCompany, it’s important to ensure all deductions are part of your assessable income. And before spending any money, business owners should ask themselves: “Can you justify this expense?”.
“Businesses are always looking to make $300 deductions here and there, and some smaller deductions that businesses look for they’re actually not entitled to,” she says.
“Businesses also try to wrangle personal things through as business expenses, and that’s a no. Make sure it definitely has a business connection, or your bookkeeper will just pick it back out.”
Each year, the ATO also outlines the claims it will be watching when it comes to work-related tax deductions. This year, the tax office will be keeping an eye on travel expenses, meals, and internet use.
7. Be aware of company tax rate changes
If your startup is incorporated, your company tax bill will be lower this financial year; the company tax rate for small businesses has been lowered from 30% to 27.5% for the 2016-17 financial year, for businesses turning over less than $10 million each year.
8. Understand the HECS threshold
Many startup founders may still be paying off student loans. If that’s you and your also looking to increase your salary come tax time, it’s important to be aware of some changes to the HECS repayment threshold.
The current taxable income threshold for repayment of the HECS-HELP scheme is $55,000, however, the government plans to lower this threshold to $42,000 in 2018.
“For business owners with a HECS debt who are looking at changing their salary, be aware you could be putting yourself in a bracket where you have to start paying it back,” Healthy Business Finances accountant Stacey Price told SmartCompany.
“Upping your wage could mean less money in your pocket thanks to HECS.”
9. Go online
Feeling overwhelmed with the approach of the EOFY? The ATO has a wide range of online information for startups and small business owners. The ATO app also makes it easier to conduct taxation and super affairs, record and manage expenses, and keep on top of deductions.
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